The tech giant has been a fantastic investment over the past two decades.
Without a doubt, Apple (AAPL -0.12%) is one of the best businesses in the world. And even Warren Buffett recognizes this as Berkshire Hathawaycurrently has a stake in the tech giant worth $179 billion. Buffett initially bought shares of Apple in the first quarter of 2016.
But if you were smart enough to invest $1,000 in Apple stock at the start of the year 2000, you'd be sitting on a monster gain of 21,230%. This means that modest investment would be worth a whopping $213,000 today (as of July 27).
Let's take a closer look at the key product and service introductions that helped drive Apple to its current market capitalization of over $3 trillion, making it the most valuable company on the planet.
Image source: Statista.
A storied history of innovation
Apple wasn't always the flourishing company that we are all familiar with. In fact, it was actually struggling at the turn of the century, until the introduction of the iPod in 2001 put the business back on the map and made it a force to be reckoned with in the market for consumer electronics. The iPod had a wonderful run, lasting 21 years. Apple discontinued the music player last year.
Look at the chart above and you'll see Apple's history is full of game-changing hardware products. The iPhone, which some might consider the single greatest innovation in corporate history, is what catapulted the company to become dominant on a global stage. Since 2007, when the first iPhone was launched, Apple has made dozens of upgrades, all with incredible consumer demand. In fiscal 2022, the iPhone represented 52% of overall company revenue, so it remains the core contributor to Apple's success.
Besides the iPad, Watch, AirPods, and new MacBooks, the innovation engine continues humming along. Apple recently showcased its Vision Pro headset, potentially setting the foundation for making the company a formidable competitor in the AR (augmented reality) and VR (virtual reality) markets. There are also rumors swirling that Apple is working on an autonomous vehicle. If these more far-fetched ideas become hits like previous products, then Apple's market cap could be much higher than it is right now.
Moreover, Apple has done a wonderful job in recent years of growing its Services segment, which accounted for 20% of company sales last fiscal year. This division offers things like Pay, TV+, Music, and iCloud. The high-margin recurring revenue it produces is all the proof you need to understand how management is finding more ways each year to monetize its massive global user base.
Should you buy Apple right now?
Due to its size and impressive history of financial performance, investors are already familiar with Apple. Even in the last five years, the stock has risen 300%, crushing the broader Nasdaq Composite Index by a wide margin.
There are easy arguments to be made for why one would want to invest in Apple right now. For starters, the business has a top-notch balance sheet with $166 billion of cash, cash equivalents, and marketable securities. Plus, Apple consistently produces tons of free cash flow.
Then, there's the strong brand, which is bolstered by the popular products I discussed earlier. The company's focus on the Services segment only expands the ecosystem, while keeping users locked in. Apple's customer loyalty is also hard to understate.
But investors should be mindful of the current valuation. Apple stock trades at a price-to-earnings (P/E) ratio of 33 as of this writing, propelled by the share price rising 50% in 2023 alone. That valuation is significantly more expensive than Apple's trailing 10-year average P/E multiple of 20.
Plus, there's always the company's huge scale to think about. Apple generated nearly $400 billion in fiscal 2022 revenue. Wall Street analysts forecast just 5.7% annualized revenue growth over the next five fiscal years. Even a company with this kind of pedigree can only move the needle so much from year to year. After two-plus decades of blistering growth, investors should temper their expectations going forward.
Neil Patel has positions in Berkshire Hathaway. The Motley Fool has positions in and recommends Apple and Berkshire Hathaway. The Motley Fool has a disclosure policy.
